Editorial: Dark money invades Detroit politics

Nov. 3, 2013

Written by

The Detroit Free Press Editorial Board

Increasingly, that’s the abysmally low standard applied to political fund-raising in Michigan.

The latest example? Detroit Forward, a super PAC supporting Detroit mayoral candidate Benny Napoleon, received a substantial donation from a 501(c)4 — the kind of nonprofit that doesn’t have to disclose its donors — called the Michigan Community Education Fund.

At the head of both organizations? A Detroit businessman named Chris Jackson.

Jackson incorporated the Michigan Community Education Fund on Sept. 26. Over the course of the next month, the nonprofit donated at least $149,000 to the Detroit Forward super PAC, making it the PAC’s single largest donor, responsible for 36% of the $413,750 that the PAC had raised, according to a Detroit Forward representative. And while super PACs are required to disclose donors, nonprofits like the Michigan Community Education Fund aren’t.

For a donor who doesn’t want a public connection to the Napoleon campaign, it’s a convenient dodge. And for voters who want to understand who’s paying for political campaigns, the trail goes dead.

Detroit Forward isn’t the problem. It’s just a symptom of a broken campaign finance system that abets special interests who seek to manipulate the political process without leaving fingerprints.

“This is no longer about the art of the possible,” said Rich Robinson, director of the Michigan Campaign Finance Network. “This is about money laundering, dissembling, shallow theater and the perpetual war of annihilation for annihilation’s sake. I think that’s what politics is now.”

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Duel of the PACs

In an e-mail, Detroit Forward spokesman Greg Bowens said that the Michigan Community Education Fund engages in voter education, and that 50% of its donated funds can be used for direct advocacy. Bowens declined to release the fund’s donors to date, and said Jackson’s role in both organizations doesn’t pose a conflict because a board oversees the fund’s spending.

Napoleon told the Free Press last month that he has no connection with Detroit Forward.

Mayoral candidate Mike Duggan is also supported by a super PAC, Turnaround Detroit, which has raised almost $3 million. A Free Press review of Turnaround Detroit campaign filings didn’t reveal any comparable donor organizations. But it’s currently under investigation by the Michigan Secretary of State’s Office after Detroit Forward made a complaint, alleging that Turnaround violated state law in the way it accepted contributions, and by coordinating with the Duggan campaign. Duggan’s campaign and Turnaround Detroit met an Oct. 29 deadline to respond to the complaint; Detroit Forward has 10 days to reply. The Michigan Bureau of Elections must settle the complaint within 60 days after Detroit Forward responds.

On Friday, Turnaround Detroit filed a complaint with the Secretary of State’s Office, claiming that the Michigan Community Education Fund is a “shell entity” that exists solely to funnel money to Detroit Forward.

Turnaround Detroit has made the names of its donors public, but that’s another kind of problem: A small number of big-money interests — some of the region’s most wealthy, influential players — have bankrolled the PAC. Penske Corp. gave $250,000 to Turnaround Detroit, and the company’s founder, Roger Penske, gave another $250,000. Former Compuware CEO Peter Karmanos gave Turnaround Detroit $200,000; Quicken Loans gave $80,000, and Vanguard Health, which bought the Detroit Medical Center while Duggan was the hospital system’s CEO, kicked in $100,000.

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It’s an out-of-balance impact. Disclosure satisfies the letter, but not the spirit of campaign finance law, which seeks to control the extent to which money (from individuals or corporations) warp the political process.

But at least we know who they are.

Getting darker

The way money influences political campaigns has changed.

Section 501(c)4 of the U.S. tax code — including the provision that allows nondisclosure of donors — has been around for about a century. But in 2010, the U.S. Supreme Court’s ruling in the Citizens United case changed the ways in which corporations and unions can spend money in political campaigns, giving them the ability to spend directly to influence campaigns. Pair the ability to spend directly in political campaigns with the nondisclosure provision of the 501(c)4, and suddenly, that kind of nonprofit became an attractive vehicle for donors who didn’t want to be publicly associated with an issue or campaign.

And in the last three years, 501(c)4s have roared into action. Gov. Rick Snyder’s New Energy to Reinvent and Diversify Fund (NERD Fund) took in $1.3 million during its first year in operation. Attorney General Bill Schuette is supported by a 501(c)4, On Duty for Michigan.

While activity has picked up recently, these funds are not new. Democratic gubernatorial candidate Mark Schauer had a fund that could accept unlimited and undisclosed corporate donations as a state legislator. The Schauer Community Fund existed from 1999 through 2010.

Let’s be clear: There’s no evidence that any of those elected officials, or the nonprofits they’re affiliated with, have done anything wrong. But in the absence of information, it’s easy to speculate. Snyder’s NERD Fund has paid the salary of close adviser Richard Baird, and has provided living expenses for Detroit emergency manager Kevyn Orr — fodder for anyone suspicious of the three men’s motives.

The most explosive growth of undisclosed donations has taken place in judicial races — especially in contests for seats on the state’s highest court, where about three of every four dollars spent comes from undisclosed sources. In southeast Michigan, lawyers are still buzzing about the 2012 Oakland County Circuit Court race in which a still-unidentified donor lavished $1.2 million on a TV ad campaign to unseat two incumbent judges. Both incumbents survived, but the Michigan Campaign Finance Network says the anonymous campaign on behalf of two challengers accounted for more than 75% of the total spent in a seven-way race for five seats on the Oakland Circuit Court.

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In September, Michigan Bar leaders, concerned about the millions of dollars that anonymous donors have spent to sway recent judicial elections, asked Secretary of State Ruth Johnson to reverse a 2004 decision that exempts most judicial campaign spending from public disclosure.

The bar is asking Johnson to revisit her predecessor’s declaratory ruling that only ads that urge voters to support or oppose a specific candidate are subject to the disclosure requirements outlined in the Michigan Campaign Finance Act.

Michigan Bar President Bruce Courtade says a law that allows a litigant to disqualify a judge who has received campaign help from an opposing party is meaningless if the identities of the judge’s benefactors are hidden. Johnson is expected to rule on the bar’s request early this month.

In Robinson’s 2010 report on campaign spending in Michigan, he described another problematic situation: Issue advertising in Schuette’s 2010 campaign was funded by the Michigan Advocacy Trust and the Law Enforcement Alliance of America, a 501(c)4 nonprofit organization based in Falls Church, Va. Together, the groups spent more than $1.3 million. Neither disclosed its donors.

Easy to break, hard to fix

Fixing this system won’t be easy. Donor anonymity is protected by an important 1958 U.S. Supreme Court ruling; the State of Alabama wanted the NAACP to disclose its donor lists, but the court ruled that without due process, donors’ names were off-limits. Congress has shown no appetite for altering the post-2010 status quo.

But some politicians are getting the message. Snyder announced that he was shutting down the NERD Fund and launching a new nonprofit that would disclose its donors. Schauer’s is likewise out of business, and while Schuette’s nonprofit will continue to operate, it will release the names of future donors.

“There’s been so much negative publicity … that we’ve just got to acknowledge that the public and news media do have a right to know this,” said Bill Ballenger, associate editor of the newsletter “Inside Michigan Politics.” “When talk about Schauer and Snyder and some of these other people, they’re doing this voluntarily, they’re saying, ‘We hear the message, we’re closing this down, we’re going to change this.”

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But shaming a politician into shutting down a 501(c)4 is no guarantee of disclosure, Ballenger noted — and indeed, neither Schuette nor Snyder is making past donors’ names public.

As for the Michigan Community Education Fund, it may never be clear who funded it, or even how its money was spent. Because of the IRS’ reporting requirements for nonprofits, it won’t be required to file financial statements until 2014. And because the IRS allows nonprofits lengthy extensions, it could be more than a year before its financial documents — which won’t include donors’ names — are public.

“This whole business, this misuse of nonprofits, is misunderstanding the tax code,” Robinson said. “There’s more dark money in Michigan in local campaigns and elections than in federal elections. We saw it in the Oakland County races, we’re seeing in Detroit. ... It’s just as though this whole thing is seeping down into the culture, and dark money becomes more of the way of politics.